Information from Relationship Lending: Evidence from Loan Defaults in China

Chun Chang, Guanmin Liao (), Xiaoyun Yu and Zheng Ni

Journal of Money, Credit and Banking, 2014, vol. 46, issue 6, 1225-1257

Abstract: Using a proprietary database from a large Chinese state‐owned bank, we examine whether information evolved from banking relationships predicts commercial loan default by industrial firms. We find that the bank's relationship information is significantly linked to the incidence of default, and that its contribution to prediction accuracy is larger than any hard information. Furthermore, the effect of relationship information is stronger among firms that have a more sustained banking relationship. Our findings indicate that, at least in the emerging markets, a bank's relationship information still matters for large firms, despite the fact that hard information for such firms is abundant.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:46:y:2014:i:6:p:1225-1257

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